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Economy Lab

A secret to social mobility: Inherit your job from Dad Add to ...

In an article that appeared earlier this year, The New York Times described the extent to which rich parents can expect to see their children grow up to be rich adults, as well as the likelihood that the poor raise children destined for poverty.

Surprisingly enough, the article came close to concluding that if Americans are interested in living the American Dream – where family background has little influence on adult outcomes – they should move to, of all places, Denmark, or if crossing the Atlantic seems daunting, then, as a second best, to Canada.

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Indeed, Denmark has been a darling of sorts ever since Richard Wilkinson and Kate Pickett highlighted in their book, The Spirit Level, that Danish life is so much better along a whole host of dimensions because income inequality is so much lower.

But Denmark has a little secret, one it shares with Canada, about how kids get jobs, and about how this determines life chances even in places with low inequality.

This secret is described in a chapter that I and two Danish co-authors contributed to a book just published by the Russell Sage Foundation, From Parents to Children.

About 30 per cent of young Danes and 40 per cent of Canadians have at some point been employed with a company that also employed their father.

In large measure this is associated with the first jobs these individuals get during their teen years, but for 4 to about 6 per cent it also refers to their main job in adulthood.

This is important because in both Denmark and Canada the transmission of employers between fathers and sons is greater, the greater the father's earnings, and particularly so for top earners.

If the father's earnings placed him in the top 10 per cent, the chances that his son will inherit his employer are above average. The majority of sons raised by fathers in the top 1 per cent – indeed almost 7 out of 10 in Canada – worked for an employer at which the father had also worked.

There are a number of reasons for these patterns.

Some firms may give preference to the children of employees when making their hiring decisions, but this falls short of outright nepotism since parents do not necessarily control the hiring process.

Networks may also matter. It may be that richer parents are able to offer better information to their children about job openings with more stable employers.

Self-employed fathers are more likely to pass jobs along to their sons, but this is not so great as to suggest that direct control over the hiring process is the main reason why 30 to 40 per cent of sons at some point worked for the same firm as their fathers.

Parental networks and information are a more likely explanation, and should be seen as another type of investment that parents make in the prospects of their children.

This said, there is a sense that nepotism may be part of the story for some segments of the population, particularly those at the very top.

But equally important is the fact that the transmission of employers between fathers and sons has implications for earnings. The degree to which a son's earnings are related to his father's is very similar in Canada and Denmark, with similar tendencies for those born to low and high-income fathers to become low and high income adults.

In both countries sons born to fathers in the bottom 25 per cent of the earnings distribution have about a 30 per cent chance of ending up in the bottom 25 per cent as adults, and about a 15 per cent chance of rising to the top 25 per cent. These are enviable rates when compared to other countries like the United States or the United Kingdom.

At the same time, sons born to fathers in the top 25 per cent show similar rates of mobility in both countries, more than a third staying in the top 25 per cent as adults, and about a fifth falling to the bottom.

But mobility out of the bottom has little to do with inheriting an employer from the father, while the preservation of high income status is distinctly related to this tendency.

This research raises the importance of recognizing that child outcomes are related not just to the quality of the early years, but also to the structure of labour markets, and the resources parents have – through information, networks, or direct control of the hiring process – to influence the final transition children make in becoming self-sufficient and successful adults.

Most importantly it also makes one wonder what is happening in other countries.

If the inheritance of employers is this strong in a country with a great deal of equality like Denmark, and if it is even stronger in Canada, where inequality is somewhat greater, then how do labour markets function in the United Kingdom and the United States where inequality is even greater and generational mobility lower?

Miles Corak is a professor of economics with the Graduate School of Public and International Affairs at the University of Ottawa. The full version of this post is available at milescorak.com with a link to the research study “The Intergenerational Transmission of Employers in Canada and Denmark”

Follow on Twitter: @milescorak

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